Law

Recent TAM focuses on three-year rule and inclusion of insurance proceeds in estate

Article Abstract:

A recent technical advice memorandum addresses the issue of the taxable status of insurance proceeds and the three-year rule for estate taxes. The memorandum says that gifts made within three years of death are treated as part of the estate for tax purposes. This includes the proceeds from life insurance contracts that have been transferred to a new benefactor within three years of death. People buying life insurance should make the benefactor the original policy holder and then transfer funds to the benefactor that they can use in paying premiums on the policy. The three-year rule would not be a factor.

Two recent Letter Rulings examine when incidents of ownership in life insurance are present

Article Abstract:

Two Letter Rulings help define incidents of ownership in life insurance trusts. Ltr. Rul. 9421037 stated that the sole owner of a company had no incident of ownership in the life insurance trust he set up for his employee, despite having the power to fire the employee and nullify the trust. This is because both owner and employe had created incentives not to terminate the trust or the business relationship. In Ltr. Rul. 9434028, trust language prohibiting a trustee from having fiduciary powers was enough to avoid the inclusion of the trust from the trustees estate for tax purposes.